In the SPM business, discussions aren’t always centered around figures. Clients want answers in plain English too. Below, we answer one of the many questions fired our way regarding plan modeling and how to ensure sales performance by eliminating overpayments and/or underpayments.
Our company is growing rapidly, and we seem to be rolling out new compensation plans without sufficiently modeling them. What best practices ensure that the plans perform as expected and that we won’t end up overpaying or underpaying our people?
When plans are not properly modeled before they are rolled out to the sales force, companies must deal with the consequences of unknown budget risks, unanticipated compensation costs and unexpected mid-cycle modifications to plans.
Trial and error
Not devoting the necessary time and resources to model new compensation plans can lead to surprises that cost far more in the long run. So the first step to modeling is to simply allocate time and capital to the people with the right experience. The next step is creating the actual plan model.
Building plan models requires specialized skills and solutions, so that the models can be tested easily in a range of likely scenarios. You have to know where you’re headed with your testing to know what kind of model you need to build. Once the plan model is created, the next step is using it to simulate different scenarios.
The first run of the model should be “at target,” or assuming achievement of the sales target. This enables you to determine what the commission/bonus payments will be if your company performs as expected, relative to the plan. If results are not what you expected, examine the plan parameters. If adjustments to commission rates, products weights, or other parameters do not produce the expected results, the problem is likely structural, which means rethinking and redesigning the structure of the plan itself will be required.
Plan & simulate
Assuming your results are in line with your expectations, the next step is testing the plan’s budget sensitivity. What happens to payments and the cost of sales if goal attainment is 50 percent, 75 percent, 90 percent, 110 percent, 125 percent, or even 200 percent of the target? Note the expected payout of each scenario and match that against what is acceptable.
When running the scenarios, be sure your modeling data sets represent typical performance distributions rather than assuming that everyone overachieves or underachieves at exactly the same levels. If you are satisfied with the model results under a wide range of scenarios, you are ready to launch your sales compensation plan. Post launch, regularly track actual performance against predicted performance.
Ask the experts
When dealing with a massive sales force, things like comp plan design and modeling can get out of hand. Even the most experienced leader needs assistance modeling plans that ensure fair compensation for all. Luckily, these days there are dedicated solutions and subject matter experts to manage plan modeling and compensation for you, so you can focus on selling.
Interested in upping the ante for your sales force? Drop by our business site and see how Optymyze platforms and services can benefit your business.